First, let me begin by saying that NETS is your Network, your Brand, and your Answer for Durbin requirements!

Consistent with that commitment, we are pleased to announce that NETS has executed a long-term, reciprocal PIN POS and ATM agreement with the PULSE network. This alliance with PULSE assures our member institutions the following:

• Strong nationwide PIN debit coverage for all of your cardholders — without any additional effort or expense on your part. This coverage will come to you in a seamless and transparent manner and will not require your institution to execute a separate agreement with PULSE
• Full and complete compliance with the exclusivity provisions of the final Durbin rule
• The only PIN POS network that you will need for compliance is the NETS brand
• Member institutions that select NETS as the only PIN POS brand will receive PULSE premium interchange rates — a rate you would not necessarily qualify for on an individual institution basis
• Participating Member institutions will pay no “Membership Fees” or receive billing statements from PULSE — which will lead to costs savings for your institution

We are very excited about this alliance with PULSE and the many advantages and benefits it will bring to our membership and our organization. We will work closely with each of you to ensure a very well coordinated plan to assist our member institutions on all aspects of this new legislation — and specifically on identifying the best time to begin a transition away from any costly national network that you participate in. If your current Processor suggests that you need another national network brand on your cards to be compliant with Durbin, you should know that is just not true! The NETS/Pulse alliance is the only solution you need. We will continue to communicate regularly with you throughout the process, and we are always available to discuss any specifics of your debit card program and any questions you may have.

As a reminder, effective October 1, 2011 routing will be directed at the merchant/merchant processor level. With this change, there have also been some adjustments and shifts in interchange tables nationwide — even for exempt institutions. Interlink, in particular, has lowered certain interchange rates effective 10-1-11. Thus, it is highly probable that your institution will experience a decline in interchange revenue in October. This is yet another reason why the alliance that NETS has established with PULSE will be important for you, and why we will continue to dialog with you about the best way and the proper time to consider eliminating unneeded PIN POS network memberships.

In closing, you can count on NETS to help your institution meet all requirements and be in compliance with not only Durbin – but with existing Nebraska statutes. You can also count on NETS to continue to be a low cost, highly efficient provider that consistently finds ways to reduce your processing costs and deliver to you the highest net revenue solution possible.

Thank you again for your loyalty and for the opportunity to work with and for you. Please feel free to contact me if you have any questions, or would like to visit about any aspect of our capabilities.

Sincerely,

Cathy Morrissey
President

Last Wednesday, the Federal Reserve issued the final rule to implement Regulation II on debit card interchange, network exclusivity and routing provisions (commonly referred to as the Durbin Amendment). The notable highlights of the final rule include:

• For non-exempt banks (over $10 Billion in assets), the allowable interchange fee was increased from 12 cents in the proposed rule to 21 cents with a five basis points per transaction ad valorem amount for fraud adjustment.
• The Federal Reserve moved the effective date for the interchange fee standard from July 21, 2011 to October 1, 2011.
• With respect to network exclusivity, the Federal Reserve opted for Alternative #1 (each debit card must participate in at least two unaffiliated debit networks).
• The deadline for issuers to comply with the multiple unaffiliated network routing is April 1, 2012; however, beginning October 1, 2011, merchants will begin having the right to direct transaction routing (limited to networks available on the card).
• In an effort to protect the small issuer exemption from the fee cap, the Federal Reserve will publish the average interchange fees received by issuers from each network.

While the final rule is certainly an improvement over the initial proposal, concerns over this legislation remain. However, I want to reaffirm to you that NetWorks is prepared and will help you meet each requirement under this law. NetWorks will hold a complimentary webinar for our membership on the final rule and our preparedness on July 19th at 2:00 p.m. CST. Additionally, we will soon be releasing specific details on the commitments we have previously made to you:

• Nationwide PIN debit coverage – the NetWorks brand is the only PIN POS brand you will need to comply!
• Cost savings due to the ability to eliminate a second PIN POS network.
• Ability to offer multiple tiers of interchange.
• Highest net revenue solution possible for all of our membership.
• Readiness ahead of all required dates.

Thank you again for the opportunity to serve your institution. As always, I welcome any questions that you may have about this rule and your network!

Sincerely,

Cathy Morrissey
President

As you know, last week the Senate failed to pass legislation that would have called for the Federal Reserve to ‘stop and study’ the potential impact of the Durbin Amendment provisions prior to enactment in July. We believe that would have been an important and prudent action, and as such, we are disappointed in the 54-45 vote on this matter. Both Senator Johanns and Senator Nelson supported the delay and our thanks go out to them. Now, this ‘hot potato’ has been tossed back to the Federal Reserve to issue the final ruling.

We anticipate that this final rule will be released next week, possibly as early as Monday. And while we hope that the Fed will make constructive changes to the initial proposal, particularly since Chairman Bernanke is on the record with his concerns that the rule, as it reads today, could harm all banks, regardless of size.

However, it is important that you know that NetWorks has been working consistently and steadily to ensure that not only your network is ready, but more importantly, that your institution will be in compliance with the final ruling. Here is what you absolutely can count on:

• NetWorks Members will be assured nationwide PIN debit coverage for all of your cardholders – without any additional effort or expense on your part; This coverage will come to you in a seamless and transparent way. In fact, we are convinced that we will offer your institution cost savings over your current national network option.
• NetWorks will be ready for you on July 21, 2011, as well as any other mandated timelines that may be forthcoming.
• NetWorks can and will offer multiple tiers of interchange.
• NetWorks will continue to offer our Members the highest net revenue solution possible - top line revenue may get your attention, but it is critical that costs also be considered;
• NetWorks will continue to be a low cost, highly efficient provider that consistently finds ways to reduce your processing costs, and we remain fully committed to ‘turning off’ the billing process each year;
• NetWorks will continue to keep compliance a focus for you – not only compliance with the ultimate final Durbin ruling – but also compliance with existing Nebraska statutes.

Finally, once the final rule is released and digested, NetWorks will hold a special webinar for all of our membership to cover the requirements, the outlook and the specifics of how we will ensure that our membership will be in compliance with this ruling.

In summary, your network will be ready and will continue to look out for you. Thank you for your loyalty and your relationship. Please feel free to contact me if you would like to visit about any aspect of our capabilities.

Sincerely,

Cathy Morrissey
President

As the leaders of your organizations, you are continually challenged to make decisions — many times without having the benefit of complete information. The current environment is no different, as the full implications of the Dodd Frank Wall Street Reform Bill are yet to play out.

As your Member Owned network, we at NETS will do everything we can to add clarity to the future of your debit card program. Your NETS team has continued regular and consistent communication with the Federal Reserve as well as with our delegation in Washington, in an effort to effect positive change in the legislation. We also can tell you that you absolutely can count on and be certain of the following:

• NetWorks Members will be assured nationwide PIN debit coverage for all of your cardholders — without any additional effort or expense on your part;
• NetWorks will continue to offer our Members as competitive a net revenue solution as the market will allow — top line revenue may get your attention, but it is critical that costs also be considered;
• NetWorks will continue to be a low cost, highly efficient provider that consistently finds ways to reduce your processing costs, and we remain fully committed to 'turning off' the billing process each year;
• NetWorks will continue to keep compliance a focus for you — not only compliance with the ultimate final Durbin ruling – but also compliance with existing Nebraska statutes, that quite frankly, some processors either deliberately disregard or are so large that they choose to ignore the basic framework that has shaped electronic banking in Nebraska for so many years; and
• NetWorks will be ready for you on July 21, 2011, as well as any other mandated timelines that may be forthcoming.

In summary, your network will continue to look out for your best interests. That is why it is disappointing that certain processors that also happen to own a network are promoting fear and confusion at this crucial point in time. We pledge to continue to work diligently on your behalf on all fronts and quite frankly we are very confident about our ability to manage your program costs even lower. Finally, we welcome the opportunity to visit with you about any aspect of our capabilities and encourage you to contact us if you have any questions at all.

Thank you for the opportunity to serve you.

Sincerely,

Cathy Morrissey
President

I am writing today as a follow up to my letter to you dated December 21, 2010 and in an effort to keep you apprised of both industry and NETS responses to the Federal Reserve's proposals on the Durbin Amendment.

It is safe to say that the reaction to the Fed's proposal for regulating debit interchange rates and routing alternatives has been both intense and far-reaching, and despite the total asset exemption within the interchange proposal, we firmly believe that the current interchange and routing proposals will detrimentally impact financial institutions of all sizes.

It is also safe to say that your team at NetWorks intends to be among those in the industry advocating for your interests. To that end, we would like to share with you some of the preparations we are making and NetWorks' position on several key issues:

• Multiple Network Requirement. — As a part of NetWorks, your organization has consistently had multiple network options for routing PIN transactions. However, you should know that NetWorks is in discussions with numerous industry participants and potential partners to develop creative and cost-effective options for member compliance with the Federal Reserve’s multiple routing provisions. If adopted, the proposals—requiring either one PIN and one signature network or two PIN and two signature networks—would necessitate changes to many issuer debit programs. We intend to help our members as much as possible to understand how to address these changes and to provide exclusive, creative solutions.
• Geographic Limitations. — As currently proposed, NetWorks (a predominantly regional network) would not be allowed to serve as one of the networks for purposes of fulfilling the multiple network routing requirements. This is despite the fact that the vast majority (roughly 90%) of transactions made with cards that feature NetWorks access take place in our network coverage area. We believe the final rules need to include qualifications for regional networks to fulfill the intent of the routing restrictions—to increase competition. Otherwise, institutions could be compelled to add one or more of the handful of qualifying (and more expensive) national networks, diminishing the very competition that the rules are intended to foster.
• Interchange caps. — First of all, we strongly believe that the “Cap” proposed for covered Financial Institutions is wrong, too low and too far reaching – and we definitely plan to address this issue in our comment letter. We also have a strong opinion that despite the exemption, interchange rates for exempted financial institutions will be reduced. However, it is important for you to know that NetWorks is “technically capable” and will be prepared to implement a two-tiered interchange system to facilitate processing of both exempt and covered transactions. Of the two fee-cap proposals offered we believe the industry would be better served if the Federal Reserve adopts a straightforward, more reasonable, cap as opposed to a more burdensome 7-cent safe harbor with a 12-cent cap. However, above all, it is our hope that the Federal Reserve will revisit the proposal with an eye toward market realities and put forth realistic fee limitations that acknowledge debit programs’ true cost to issuers.
• Member Network Fee Waivers. — As you know, NetWorks customarily suspends network fees after collecting fees necessary to meet our annual operating expenses. Although the proposal includes rules against certain compensatory practices that benefit issuers, we are confident that our practice should not be affected by the current proposal. We intend to obtain guidance from the Federal Reserve to confirm that our beneficial pricing practices continue to comply with all aspects of the final regulation.

Comment Letters. First of all, NetWorks will be coordinating with other regional networks affected by these proposals to submit comment letters that address the interests of our members. But clearly, it is very much in your financial interest to get involved and we need your help to submit comment letters in support of not only NetWorks’ mission but also the financial well being of your institution. For this reason, we encourage you to contact us so we can assist you in preparing a comment letter to the Federal Reserve for submission before February 22.

At NetWorks, ensuring that our Members are compliant with state and federal statutes in the EFT arena has always been at the forefront of what we do. We stand prepared to work to assist you, our Member, through any and all new requirements that are forthcoming.

Sincerely,

Cathy Morrissey
President

Dodd Frank / Durbin Amendment Proposed Ruling

As a result of passage of the Dodd-Frank/Regulatory Reform Bill, last week the Federal Reserve released proposals for regulating debit card interchange rates and routing alternatives. Your team at NetWorks has been researching and monitoring this proposed legislation carefully since its passage, and we will continue to do so on behalf of our Membership.

At NetWorks, ensuring that our Members are compliant with state and federal statutes in the EFT arena has always been at the forefront of what we do. Thus, while none of us actually looked forward to the Fed's ruling — we stand prepared to work to assist you, our Member, through any and all new requirements that are forthcoming.

As we all continue to analyze the Fed's proposal, you can absolutely be confident that NetWorks is working steadfast on your behalf to allow your institution to be certain of compliance with any new final regulatory requirements — as well as to continue to provide our Membership the peace of mind that we are looking out for your best interests. In fact, we have been in discussions with key network players to create the best solution for our Members.

We truly appreciate the opportunity to serve your institution, and we pride ourselves on being known as your trusted partner. You will continue to receive updates from us as more is learned. We will also provide you assistance with talking points to use in your comment letter to the Federal Reserve.

Please feel free to contact me or your primary service representative at NetWorks with any questions you may have.

Sincerely,

Cathy Morrissey
President